You’re having a financial crisis.
And suddenly you can’t afford to make the monthly mortgage payments and you’re forced to look for a way out, hoping on avoiding foreclosure along the process.
Well the good news is a short sale may be a viable option.
However, short sales are anything but short.
It can be a complicated process, and it is in your best interest to work with a real estate agent and settlement agent that have successfully naivigated short sales in the past.
Where a standard real estate transaction has two parties but there are 3 interested parties in a short sale.
The 3 parties of a short sale:
- The seller
- The buyer
- The lender
The lender has to agree to settle the mortgage for less than the remaining balance, agreeing to forgive the loan. In this scenario the seller does not make any money from the sale.
Identify The Current Situation
In any situation, the first step to solving a problem is idenitying that there is one. Homeowners that are falling behind on their payments most recognize the problem and begin looking for a resolution. Failure to do so could lead to bigger problems.
Before your mortgage company will approve a short sale you’ll have to prove you’re experiencing a hardship. Most hardships involve or center around some event that has negatively affected your financial situation.
A few of the more common hardships are:
- Reduced income caused by job loss, a reduction in pay
- Change in marital status (separation or divorce)
- Medical bills causing increased expenses
- Death of a member of the household that contributed to the mortgage
- Relocation for a job
- Military deployment
This list is just the tip of the iceberg of acceptable hardships.
Demonstrate Provable Financial Hardship
As mentioned above, in order to be considered for a short sale you have to prove you don’t have the capability to continue paying the monthly mortgage.
Better yet, provide financial documentation stating that you’re incapable of continuing any payments.
Many lenders are hesitant about doing a short sale if they can recover the mortgage with a regular sale and you don’t have any assets to assist on paying the mortgage.
Enlist The Services Of A Qualified Agent
Before contacting the lender about conducting a short sale, you should hire a real estate agent who has experience with successful short sales, as they will know how to handle the process.
If your real estate agrees that short sale is the best option, you will sign a written authorization for your agent to contact the lender on your behalf and outline its likely terms, process and possible resolutions.
In addition, your real estate agent will need you to sign a listing agreement stating that your property can be listed below market value.
Gather Documents for Your Short Sale Package
The Short Sale Package consist of a list of documents provided by your lender to initiate the short sale process. Homeowners interested in a shorten short sale process should start compiling these documents as soon as possible.
Here’s a list of possible documents your lender may require in a complete short sale package:
- Executed Listing Agreement
- Fully Executed/Ratified Purchase Contract
- Seller’s Hardship Letter
- Authorization Letter
- Last 2 Bank Statements
- Last 2 Year Completed Tax Returns
- Last 2 W2’s (for individuals on a companies payroll)
- Last 2 quarters Profit and Loss Statement (self-employed individuals)
- Estimated HUD settlement statement
The documents that are included in your Short Sale Package will depend on your lender.
After compiling these documents, your agent will make sure everything is submitted to your lender with a short sale cover sheet. The cover sheet will act as a table of contents for anyone who reviews the package.
Depending on the lender, they either require you to submit the short sale package once your property is listed or when you have a ratified sales contract between the buyer and seller.
Lenders that accept financial documents before listing home may pre-approve the property for a short sale. This is a very small percentage of banks offering preapproved short sales.
Proceed with Short Sale
Once the buyer makes an offer, the seller and the buyer needs to sign a contract. The contract states the borrower’s duty to close on your property after receiving the lender’s approval.
Before accepting an offer from any buyer, your agent should ask the buyer’s agent if their client is patient enough to make it through the process. There’s no timeline for a short sale approval. Some short sales get approved in 30 days while others take a year. Making sure you have the right buyer is one of the pillars to your success.
Next, your agent will include the fully executed/ratified sales contract with your short sale package. Your complete short sale package will be submitted to your mortgage company.
After submitting the requirements, the bank will assign a short sale negotiator to review the short sale package. The short sale negotiator works for the bank and acts as a point person for all inquiries during the short sale process.
There are 3 options after the short sale negotiator reviews the short sale package:
- Accept the offer
- Reject the offer with or without reason
- They may not respond at all
If your lender didn’t accept the offer or refuses to respond in a timely manner, your real estate agent will continue negotiating a transaction that is agreeable for all parties.
Once the lender approves the short sale, it is time to close the deal.
After the bank agrees to accept the offer the transaction will proceed as with any standard real estate sale. The buyers home inspection and financing contingencies will typically take effect based upon the date of bank approval.
I can be reached via email at [email protected] or by phone at (703)539-2053. I’m happy to answer all your real estate questions.
Related Articles about Short Sales
- 20 Cold Hard Facts About Short Sales via Lynn Pineda
- How to Successfully Complete a Short Sale via Kyle Hiscock
- Understanding the Short Sale Process via Debbie Drummond
Thinking of selling your home? Check out our 20+ step Guide to Selling Your House or you can contact me now to start the process immediately. I can be reached via email at [email protected] or by phone at (703)539-2053.
I’m happy to answer all your real estate questions. Same day appointments are available on a case by case basis. I look forward to hearing from you.
About the Author
The above article was written by Abraham Walker, Your Northern Virginia Real Estate Agent, helping clients market their homes to achieve high sales with a quick closing time is my main priority. He’s the co-founder of Ask A Walker and can be found on YouTube, Facebook, and HERE on this blog.